Venture: UK Small Cap
Issue 2;
This UK small cap was devastated by the pandemic. The shares are now dirt cheap and, following today’s announcement, have less risk.
The Restaurant Group (RTN)
RTN today announced the sales of 75 of its 380 sites to the Big Table Group. These sites comprise its leisure business, and this sale will reduce debt and increase margins for the group. The leisure business lost £65 million last year from brands such as Chiquito’s and Frankie and Benny’s.
What remains are the more compelling and more culinarily sophisticated likes of Wagamama and Brunning and Price. RTN also has multi-brand concessions at UK airports, which are vibrant locations. I show RTN’s sales over the years and the market cap. Price sales is 0.4, having averaged 1.2x and touched 2.5x on occasion.
Pandemic aside, there has been pressure in mid-range dining on the high street, but the premium brands have performed better, and this is where RTN is headed. The earnings have been falling for the past few years, along with the soft patch in mid-range dining and the pandemic. But that ended in January this year. Since then, we have seen upgrades, and this news will inevitably lead to more. The analysts’ consensus average share price is 66.2p, with some upgrades today to 70p, including one to 77p.
This is a relatively simple situation. RTN are slimming down and focusing on their best assets. If the company manages to recover their operations, that value will be realised. The other thing worth mentioning is the CEO is Andy Hornby… Yes, that one from HBOS in 2008. The good news is the other companies associated with him fared better, and he was never a banker in the first place.
Risk
A consumer recession is a risk, but I would argue that by going upmarket and selling the lower-end brands, they will be more insulated. The bottom line is that RTN withstood the lockdowns, and that ought to give us confidence. It is a simple case of realising value.
Please let me know your thoughts by emailing me at charlie.morris@bytetree.com or tweeting me @AtlasPulse.
Many thanks,
Charlie Morris
Editor, Venture
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